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Kids Are Costly—Plan Ahead So You Can Give Them What They Need

October 5, 2018

HAVING CHILDREN IS THE BIGGEST LIFE CHANGE—bigger even than marriage or retirement. That’s one of the findings of “The Financial Journey of Modern Parenting: Joy, Complexity and Sacrifice,” a new study by Merrill Lynch, conducted in partnership with Age Wave.

Parenting is also one of life’s biggest expenses. From diapers to daycare, dental bills to college tuition, 90% of the 2,500 parents surveyed were surprised by how much more they spent after becoming parents.1 And those costs often continue after kids are grown, says Ken Dychtwald, Ph.D., CEO and founder of Age Wave. “In this new era of delayed financial independence of young people, financial planning is becoming an ongoing family project with longer and different economic interdependencies than we’ve seen before,” he notes.


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In fact, parents in the U.S. now spend $500 billion annually on their 18- to 34-year-old kids, twice the amount they contribute each year to their retirement accounts.2 But that parenting bill comes with life-changing rewards: 94% of the parents surveyed said the costs of parenting are “worth every penny,” according to the study. Still, you shouldn’t sacrifice your own financial security. These tips can help.


46% of dads and 24% of moms switched to jobs that paid more after they became parents. —“The Financial Journey of Modern Parenting”

Young tots, new expenses

“With the birth of my kids, it wasn’t about just me anymore,” said one of the parents surveyed in the Merrill Lynch/Age Wave study. “It was about them—caring, nurturing, teaching and loving.” Fifty-four percent of moms and 42% of dads took time off from work when they first became parents, and 46% of dads and 24% of moms switched to jobs that paid more.1

Discussing your new financial realities with a financial advisor and putting a savings strategy in place before your kids are born can help you plan for all the extra costs that come with parenting. Another good tip: Starting to save for college as early as possible using a tax-advantaged 529 plan will allow plenty of time for that money to compound before your children reach college age, says Richard Polimeni, director of Educational Service Programs at Bank of America Merrill Lynch.

You may also want to talk to a financial advisor about your investment strategy: Six in 10 parents surveyed said they began investing more or adopted a greater tolerance for risk to help make their money work harder for them.1

High school, high costs

“Parents of teens can begin to feel like an ATM, funding clothes, entertainment, transportation, the latest mobile phone and school activities—all the while also continuing to save for college,” says Stacy Allred, managing director and head of the Merrill Lynch Wealth Management Center for Family Wealth. Those expenses can have unwanted long-term effects for parents’ future security, with 72% saying they have put their children’s interests ahead of their own needs to save for retirement.1

Six in 10 parents began investing more or adopted a greater tolerance for risk to help make their money work harder for them after they became parents. —“The Financial Journey of Modern Parenting”

According to the study, more than half (53%) of parents of children ages 7 to 17 give them allowances, with the median at $40 per month for children under age 14, and $65 per month for those between the ages of 14 and 17. “Allowances are a great tool to provide experiential learning and build budgeting skills,” suggests Allred. “Being upfront with your children about what you can and can’t afford, sharing the why behind your decision-making, and teaching them about financial responsibility, including the importance of saving and investing for their own future, can help you minimize costs during this stage,” she says.

An empty nest, not empty pockets

The costs don’t end when the kids move out: 79% of the parents surveyed have provided support for children ages 18 to 34. “While it’s tempting to help your kids get a good start, early adulthood expenses can be big-ticket items, like cars, rent and grad school tuition. If you can afford to help out, that’s great, but be clear on your intent, set clear boundaries and don’t imperil your own finances,” cautions Allred. Instead, focus on helping them become financially independent, she says. “Remember that one of the greatest financial gifts you can give your kids is financial independence and security.”


For more tips and insights, plus a “Parenting Financial Action Plan Checklist” read “The Financial Journey of Modern Parenting: Joy, Complexity and Sacrifice.

1 The Financial Journey of Modern Parenting: Joy, Complexity and Sacrifice, Merrill Lynch/Age Wave, 2018

2 Calculation based on parents’ contributions as reported by their adult children ages 18-34 across 14 expense categories and IRS data on employees’ elective contributions to the full range of retirement accounts.

Age Wave is the nation's foremost thought leader on population aging and its profound business, social, financial, healthcare, workforce, and cultural implications. Under the leadership of Founder/CEO Dr. Ken Dychtwald, Age Wave has developed a unique understanding of new generations of maturing consumers and workers and their expectations, attitudes, hopes, and fears regarding their longer lives. Since its inception in 1986, the firm has provided breakthrough research, compelling presentations, award winning communications, education and training systems, and results-driven marketing and consulting initiatives to over half the Fortune 500. Age Wave is not affiliated with Bank of America Corporation.

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